9911796707
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Issues Involved:
1. Disallowance of depreciation on aluminium cops. 2. Disallowance of legal expenses incurred in connection with amalgamation. 3. Disallowance of sales promotion expenses. 4. Disallowance of guest house expenditure. 5. Addition on account of under charges received but not disclosed in taxable income. Summary: Issue 1: Disallowance of Depreciation on Aluminium Cops The assessee claimed 100% depreciation on aluminium cops purchased and leased back to JCT Ltd. The Assessing Officer (AO) disallowed the depreciation, labeling the transaction as a "colourable transaction" aimed at tax avoidance, citing McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11. The Commissioner (Appeals) partly upheld the AO's decision, allowing depreciation only on a portion of the cops. The Tribunal directed the AO to re-examine the transaction under Explanation 3 to section 43(1) and determine if the main purpose was to reduce tax liability. If not, depreciation should be allowed on the actual cost paid by the assessee. Issue 2: Disallowance of Legal Expenses Incurred in Connection with Amalgamation The assessee claimed legal expenses of Rs. 28,200 as revenue expenditure. Both the AO and Commissioner (Appeals) disallowed the claim, considering it capital in nature, referencing Union Carbide India Ltd. v. CIT [1987] 165 ITR 678/[1988] 41 Taxman 92. The Tribunal, following CIT v. Bombay Dyeing & Mfg. Co. Ltd. [1996] 219 ITR 521/85 Taxman 396, allowed the deduction, treating the expenses as revenue in nature. Issue 3: Disallowance of Sales Promotion Expenses The assessee claimed Rs. 44,995 for tea, coffee, and refreshments served during discussions about amalgamation. The AO and Commissioner (Appeals) disallowed the claim, treating it as entertainment expenditure u/s 37(2A). The Tribunal upheld this disallowance, referencing CIT v. Patel Bros. & Co. Ltd. [1995] 215 ITR 165/81 Taxman 156. Issue 4: Disallowance of Guest House Expenditure The AO disallowed guest house expenditure under section 37(4). The Commissioner (Appeals) allowed the deduction, referencing CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553/76 Taxman 185. The Tribunal reversed this, citing CIT v. Upper Ganges Sugar Mills Ltd. [1994] 206 ITR 215/72 Taxman 37, and disallowed the guest house expenses. Issue 5: Addition on Account of Under Charges Received but Not Disclosed in Taxable Income The Commissioner (Appeals) had deleted an addition made by the AO for under charges received but not disclosed. The Tribunal set aside this deletion, agreeing with the revenue that the addition was justified. Condonation of Delay The revenue's appeal was filed with a delay of 13 days. The Tribunal condoned the delay, finding the reasons satisfactory. Conclusion The Tribunal partly allowed both the assessee's and the revenue's appeals, directing a re-examination of the depreciation claim on aluminium cops and upholding the disallowance of sales promotion and guest house expenses. The legal expenses incurred for amalgamation were allowed as revenue expenditure, and the addition for under charges received was reinstated.
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